Should You Invest in Hydrogen Stocks Now?

Hydrogen has a tonne of long-term growth potential, but in this higher-risk investing environment, these stocks are still quite expensive.

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Investing allows you to put your hard-earned money back to work for you and is crucial to achieving your long-term financial goals. Another major benefit is that you can invest in helping solve issues that matter to you.

And right now, one of the biggest issues that the world faces is climate change due to the pollution that the global economy creates.

We are constantly being reminded about the devastating effects that climate change can have as we see evidence of it with the increase in extreme weather events. So it’s clear that the world needs to continue investing in building cleaner sources of energy to help slow down the impact of global warming.

Towards this end, in recent years, there’s been a surge in development of wind and solar farms. Among the significant improvements in clean technology lately, many believe hydrogen has huge potential in the future, creating significant interest in hydrogen stocks.

So if you’re looking for a high-potential investment and to invest money in the green energy sector to help slow down climate change, here’s what to consider before investing in hydrogen stocks.

What to consider before investing in hydrogen stocks

There is no doubt that hydrogen has a tonne of potential, making hydrogen stocks an intriguing investment. However, like any company or industry that’s still in its early stages of growth, as much potential as there is, there’s also a tonne of risk.

Not only are these high-risk, high-reward stocks much more volatile than the broader market, but they are often priced at premiums. Therefore, as attractive as they can look for their long-term growth prospects, you don’t want to overpay for them today.

It’s not uncommon to see stocks in these high-potential growth industries trading with premium valuations long before they have consistent profitability and, in some cases, impressive sales.

Crucially, do a lot of research and fully understand how the stocks you’re looking at make money. Further, you’ll want to ensure that any stocks you do buy you keep as only a small portion of your portfolio due to the high risk of the early-stage of the industry.

So if you’re looking for a hydrogen stock to research and add to your watchlist, one of the best companies for Canadian investors to consider is Ballard Power Systems (TSX:BLDP).

Ballard Power Systems

Ballard Power stock is a producer of hydrogen fuel cell technologies with operations all over the world. It has developed over 1,400 patents and applications over its more than 40-year history. Furthermore, Ballard is developing technology for several markets, such as buses, trucks, rail, marine, and stationary power.

Right off the bat, though, as much potential as it has, you’ll see it has a massive valuation. Although the stock rallied significantly in 2019, 2020, and early 2021, as market conditions worsened over the last year and a half, it has sold off significantly.

And even at roughly $7.70 a share where it trades today, down over 80% from its high of more than $50 in early 2021, the stock still has an enterprise value of roughly $1 billion. And when you consider that over the last 12 months, its sales have been $100 million, it’s clear that the stock still trades at a premium.

So with the widespread adoption of hydrogen technology still years away and many stocks in the industry trading at hefty valuations, it seems prudent to hold off buying these stocks in this environment and instead add them to your watchlist.

Even analysts who cover Ballard are cautious on the name right now. Of the three analysts who currently cover it, two give it a hold rating, and the other gives Ballard a sell rating. Furthermore, the average one-year target price from analysts is roughly $7, below where Ballard trades today.

So although hydrogen stocks and the technology that they are creating have a tonne of potential in the future, you may want to wait to buy these stocks until the share prices become more appealing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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